Taxes 101 For Beginners

It can be so easy for teenagers to start making money online, or by getting a job somewhere. The world is a lot tougher for young people than it used to be – in regards to finding a job. Everywhere that you apply for needs you to have experience, yet no one will give you that experience. But, with perseverance and some self-motivation, starting to earn money isn’t the hardest thing in the world.

But that doesn’t mean that some things won’t baffle you. There are many things we’re taught at school that we never use in life – like Pythagoras’ Theorem – and things that we should have been taught like taxes.

For the majority of people, all they need to worry about it making sure that they aren’t being over, or under taxed. But for those who set out earning money through entrepreneurial pursuits, tax is something they have to do for themselves. Anyone who thinks there is something wrong with their tax, they can get tax investigation advice, or contact HMRC to get straight to the heart of the issue.

Here is a quick breakdown of tax you’ll find in your payslip, and DIY taxing.

Tax Code

Think of it as a bracket – each bracket has a different tax code, and those depend on the amount per year a person earns. You will fit into one of those brackets and will be charged accordingly. When changing jobs or working temporary jobs, the tax code assigned to you can be wrong, so make sure you check on each payslip to make sure you’re in the right on – or you may be taxed too much, or too little.

National Insurance

Your national insurance tax is used to build up your state benefits, like maternity and paternity leave, state pension and the NHS. It’s what pays for your free healthcare – unique in the world – and for the money, you’ll live on when you become a parent or retire. You pay a percentage of your wage as national insurance tax, which changes depending on the amount you earn, but only after you’re earning over £157 a week.

P.A.Y.E

Pay As You Earn, or Income tax is a three-way system between HMRC, your pension provider and you. It’s usually around 20% of your wage, and only taken when you’re earning over £10,600 a year.

Student Loan

This tax is only for those with a student loan. The tax is only deductible when you earn over £17,775 a year and will be applied to your pay whenever you are given your wage. If, however, you don’t earn over that amount for 35 years, the debt is written off. As it stands with the current legislation.

Pension

If you have signed up to a pension company, either of your own accord or through work, you will see this deduction from your wage – this percentage will be whatever you have agreed to with that contract.

DIY

When you are self-employed, you need to do your taxes yourself. You do this by filling out a self-assessment form at the end of each financial year. You can claim business expenses on thing vital to your work, and even on a percentage of your bills if you use a home office.

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- Chiino
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